Did tax cuts for the rich create the Great Divergence?
Income tax rates have changed dramatically during the past 30 years. During the Reagan administration (1981-89), the top marginal rate dropped from 70 percent to 58 percent, and eventually to 28 percent. Under subsequent presidents it has hovered between 30 percent and 40 percent. But effective tax rates—what people actually pay—didn’t change nearly as much. For incomes in the top 1 percent, the effective tax rate went from 37 percent in 1979 to 29.5 percent today, with a big drop and subsequent rise during the 1980s. For incomes in the bottom 20 percent, the percentage change in the effective tax rate was much more dramatic—it was halved, from 8 percent in 1979 to 4 percent in 2007. But to contribute to the Great Divergence, the bottom quintile’s effective tax rate would have to have increased.
Tax cuts for the rich certainly contributed to the Great Divergence. But it would be hard to argue, based on this data, they were the major factor.
(The question remains, if the top 1% have seen their Federal taxes reduced by almost 1/3 and the lowest 20% by half, who has been paying for this huge increase in government spending we have been hearing about*? Actually, it has been paid for through borrowing by the Republican administrations and by various forms of bracket creep on the middle class occurring during every administration.
* Only entitlements and defense spending have been increasing, discretionary spending has become an ever shrinking portion of the Federal budget. Many civilizations and empires have collapsed under those budgetary circumstances).
TODAY’S NEWS FROM THAILAND:
a. Letter to Bangkok Post regarding vote-buying:
“In our home village in SaKet… Voters are paid upfront for their vote. Their identity cards are taken and a list made of all individuals, along with how much each is paid. The villagers do not even consider taking money from a politician and voting for someone else. The tally must match. If there are 60 votes that are bought and paid for, then there must be 60 votes cast for the vote buyer.”
b. The tragedy in Japan continues to dominate the Thai news media. The drama at the disabled nuclear power plant forcing even Gaddafi of the front page.
This reminds me of when we were first struggling with the question of Nuclear Energy during the early years of the coastal planning process in California prior to the completion of the California Coastal Plan. Sure there were serious environmental issues raised, some over-blown, like the impact of heated waste water on the marine environment and others, like the disposal of the radioactive waste, real and unresolved to this day. There were also safety concerns again some real and some not so. But interestingly, what concerned several of us who were responsible for the land use regulation and planning for the coast were the economic and political implications of the then planned nuclearization of American electrical energy.
You see each nuclear power plant was a giant financial capital sink, each plant costing more and requiring more sunk capital (Investment money not returned if the plant did not ultimately come on-line for its full economic life) than most other individual construction projects. In addition, were all the planned units to come on-line within the times proposed, they could have absorbed most of not all the capital resources available at the time potentially squeezing out other needed capital projects and increasing the cost of money.
In addition, because the sunk capital costs were so high the only way they could be financed required reducing risks to almost zero. This necessitated ever more governmental assistance in terms of subsidies, guarantees, regulatory exemptions, limits on liability and the like. In effect the taxpayer was paying for or guaranteeing these plants while others were reaping the profits and leaving the environmental costs to future generations of Americans.
So, what else is new? This is the way things work, how things get done right? Most of us looking into it agreed, but some asked the question, why and was there another way.
We were told even back then that this was necessary for the nation to reduce its dependency of foreign oil. Fair enough, but there were alternatives as feasible as these over engineered, frightfully expensive, dangerous and risky projects. For example, although none of us thought is was practical, every home and business in the US could have been fitted with photovoltaic cells for less than the cost of the nuclearization plan with lower demands on the capital market and fewer environmental and social impacts. True the cost of electricity would rise since the photovoltaic cells are less efficient in electricity production than power plants(a problem certainly as subject to future solution as the disposal of radioactive wastes). Nevertheless, even though it can be acknowledged that increasing per unit electricity costs would certainly be a political problem, the fact remained that technically options to nuclearization appeared available.
So what was going on then?
A commitment to nuclearization of the energy grid ment a commitment to a small group of engineering, supply and energy companies and the three or four financial companies large enough to finance such projects. Almost all other potential energy sources do not require such centralizing financing and engineering. The potential profits that could be made by those few large companies from the engineering, construction and above all financing fees, not to mention the potential monopolization of a segment of the energy market made it worthwhile to encourage a consistent public and political relations campaign to benefit themselves.
What they could not tolerate however was risk since the sunk costs were so large. The complexity of the legal and regulatory process in the US supplied such unacceptable risk and coupled with flattening demand and the continuing low price of oil the nuclear electrical generating industry ultimately failed in the United States. In other countries however a powerful cartel of less than a dozen state-owned or state guided firms have spearheaded the growth of the industries in those countries.
Unfortunately, the capital project financial industry in the US could not see smaller decentralized capital projects as worth their efforts (although they continue to search and lobby for large capital-intensive energy projects such as wind farms and huge solar arrays). The less capital-intensive energy options have fallen to the much smaller investment financing market.
An unintended consequence of the failure of the nuclearization of energy production was its impact on a generation of engineers and engineering schools dependent and expectant on continued growth in the demand for super large capital projects like nuclear power plants. The high-tech boom failed to provide an adequate alternative to employ this excess engineering capacity resulting in civil engineering becoming almost a lost art in the US to be replaced by a demand for and explosive growth of business and financial schools. Unfortunately, as Henry Ford observed, “A business that makes nothing but money is a poor business.”
POOKIE’S ADVENTURES IN THAILAND:
This morning as I walked Hayden to school we were faced with something new in my Bangkok experience. It was cold, forcing us to return to the apartment to change into warmer clothing.
I have recently been reading a book by Dan Simmons an author I occasionally like to read. As many of you know ever since I was three or four years old I have read to pass the time waiting for something interesting to happen in life. I have never been particularly much of an adventurer. I preferred waiting for the train to arrive rather than wandering the tracks looking to meet it. When it arrived I would hop on and ride it to wherever until I fell off or more often than not was pushed off. I would then sit by the tracks again and read until the next train came along.
It has never been particularly important what I read (although I have my preferences), fiction, non fiction, cereal boxes, bus schedules they were all the same, doorways into adventure. Reading the content list on a soup can could leave me traveling in my mind to the sources of the natural and not so natural ingredients occupying hours while waiting for something to happen.
Anyway Simmons is generally classified as a writer of speculative fiction although rarely of the “science” or “fantasy” kinds. Recently he wrote a novel called “Drood” that imagined the circumstances surrounding the writing of Dickens’ novel of the same name. The current book “Black Hills” recounts the life of a Sioux holy man from the Battle of Little Big Horn through the sculpting of Mount Rushmore. He previously wrote a novel retelling the Iliad. What marks Simmons’ novels are that they are inevitably long (I like that) and he has never met a fact in his background research that he has not found a place for in his novel (I like that too). His failure is that his stories are always about motivation (Why was Wilkie Collins so jealous of Charles Dickens as to contemplate his murder; Why did Paha Sapa plot the distraction of the Mount Rushmore monument?). Unfortunately, the motivation given rarely appears to me to justify the action contemplated and so ultimately his novels are not completely satisfying.
JOEY’S MYSTERY NOVEL:
Red Star, Chapter 14.
Vince turned toward Jerome who prefers to be called Horace mostly because it was difficult not to look at since he had no real form but appeared to be composed of shadows and looked somehow unfinished. “What do you think,” he asked?
“Look at me,” he said. “I have appeared in several things the author has written. He always promises to write a story just about me and flesh me out so to speak but he never does. Now he appears to have completely lost interest, probably because none of his readers cared”.
Nina looks up from her knitting. “Shadow-boy and the doxy have a point,” she says. “It really does not matter whether we are the dregs or not our choice is whether to do something or not and perhaps bringing more action into the story will help. It’s worth a try.”
“But how do we do that,” Vince enquired? “The next real action sequence is not scheduled for about six chapters.”
“Flashbacks, authors often use that to make sure interesting things are always happening.”
a. Book World from Jasper Fforde and Thursday Next or one thereafter:
“… Clark’s Second Law of Egodynamics: ‘For every expert, there is an equal and opposite expert.'”
b. Moral leadership through the ages (or do as I say not as I do):
John XII (955-964). Born from an incestuous relationship between Pope Sergio III and his 13-year-old daughter Marozie, John, in turn, took his mother as his own mistress. Pope at 18, he turned the Lateran into a brothel. He was accused by a synod of “sacrilege, simony, perjury, murder, adultery and incest” and was temporarily deposed. He took his revenge on opponents by hacking off their limbs. Fittingly, he was murdered by an enraged husband who caught him having sex with his wife.
The question before the human race is, whether the God of nature shall govern the world by his own laws, or whether priests and kings shall rule it by fictitious miracles?
~John Adams, letter to Thomas Jefferson, 20 June 1815